The stock of MCX zoomed more than 10 per cent on Monday during intraday and closed 7.83 per cent higher at ₹847.45 on the BSE. The stock got a leg-up from the announcement on Sunday by Financial Technologies (India) Ltd that Kotak Mahindra Bank has agreed to buy a 15 per cent stake in MCX for ₹459 crore.

FT’s stake to drop to 5% The deal has instilled confidence in investors who started thinking that the worst is behind for the exchange. Only recently, FT offloaded a 6 per cent stake in MCX in the open market. If the Kotak deal goes through, FT’s stake would stand reduced to 5 per cent.

The commodity market regulator, FMC, had ordered MCX to reduce its promoter FT’s stake to 2 per cent from 26 per cent in December last year after FT was found “not fit and proper” to own any exchange, following a payment crisis at group firm NSEL. However, since the promoter repeatedly missed deadlines for reducing its stake, the regulator said it would not allow the exchange to issue any new contracts beyond August, unless they did so. The news of Kotak Mahindra Bank’s buyout has thus come at the right time.

Kotak, however, has got a good bargain in the deal. At ₹600 a share, the deal values the company at 20 times (of per share earnings of MCX in 2013-14). This is at about 25 per cent discount to the closing price of ₹786 on Friday.

Open market deals MCX shares were issued at ₹1,032 in the initial public offering. Even the recent open market deals in the stock were done at a higher price. On July 8 when Rakesh Jhunjhunwala bought a 2 per cent stake in MCX, he paid ₹664 a share. The other 4 per cent of stake that was sold a week later was given off for about ₹753 apiece. Though Kotak Bank would have desired to buy a higher stake in the exchange at such throwaway price, it cannot do so under the caps on shareholding recently introduced for commodity exchanges. Under these rules, banks, financial institutions and stock exchanges cannot hold more than 15 per cent stake.

The deal is good news for MCX as it will now get away from the FT overhang. FT’s promoter Jignesh Shah was arrested last year after the NSEL crisis. However, current valuations of the stock do not warrant a large upside in the short term.

At ₹847.85, the stock trades at 29 times its earnings of 2013-14. CME and ICE — two commodity exchanges of the US—trade at a trailing PE multiple of 21-22 times currently.

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